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US Steel Companies Are Pursuing Different Strategic Paths

Mark O'Hara

A Closer Look at Steel Companies' 1Q16 Earnings and Future Plans

(Continued from Prior Part)

Different strategic paths

The prolonged slowdown in the steel industry has forced some steel companies to rethink their business plans. Companies are trying to find the balance between growth and preserving their balance sheets.

For instance, ArcelorMittal (MT) has raised nearly $1 billion through asset sales and another $3 billion through a rights issue. ArcelorMittal’s leverage ratios have started to look much more comfortable after raising ~$4 billion. The company looks well placed to meet its near-term debt maturities after these transactions.

U.S. Steel to raise debt

U.S. Steel Corporation (X) also faces significant debt maturities over the next couple of years. U.S. Steel is targeting a debt-to-capital ratio of 30%–35%. Currently, U.S. Steel’s debt-to-capital ratio is almost double this figure, as you can see in the graph above.

The company has announced a secured senior note offering to raise $500 million. The company plans to use this cash to repay its upcoming debt maturities. However, note that U.S. Steel’s debt-to-capital ratio won’t change after this offering, as it’s basically swapping near-term debt with medium-term debt.

AK Steel (AKS) has raised nearly $230 million by selling shares. The company plans to use this cash to repay borrowings under its revolving credit facilities.

Nucor expanding into Canada

Meanwhile, Nucor (NUE) has a problem of plenty, and it bought back its shares last year to make use of its excess cash. Now the company has announced the expansion of its downstream fabrication operations in Canada.

Note that Nucor expanded aggressively in the financial crisis of 2008–2009. This placed the company on a firm footing once the markets recovered. However, the company has been quite conservative this time, as the steel industry is currently going through a structural rather than a cyclical downturn due to massive steel overcapacity.

Move on to the next article to read about how the Market (DIA) (RZG) currently values steel companies.

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